PR24 to include emissions performance commitments

A performance commitment to reduce operational greenhouse gas emissions will be included in PR24 to encourage the delivery of net zero, Ofwat has stated.

The regulator said it also would look at the practically of adding a commitment for embedded emissions to build on current reporting requirements.

The recent consultation on PR24 and beyond highlighted need for a primary focus in the next price review period to be on actually reducing GHG emissions rather than merely offsetting them.

Ofwat set out its requirements in a position paper published on Thursday (6 January) that expressed the regulator’s support for industry efforts to cut carbon and greenhouse gases emissions. The paper highlighted the importance of focusing on embedded emissions as well as operational ones. Sector-wide efforts have already lowered the latter by 45% since 2011/12.

The regulator called on companies to prioritise reductions over offsetting, which echoes the approach being followed by water companies in their own net zero plans. Companies will be expected to demonstrate they are following the GHG management hierarchy that states offsetting is only appropriate where reductions of certain emissions are prohibitively expensive or unfeasible in the short term. Ofwat said a circular economy approach should be used to minimise the harm of any such difficult emissions. This may include innovations in wastewater management to utilise sludge and capture ammonia.

The UK government has set interim targets on the way to net zero by 2050, which include an overall 78% cut in emissions by 2035, while the Welsh government has committed to an 89% reduction by 2040.

Ofwat said it expects companies following the Science Based Targets Initiative to be clear about how the approach will help them achieve these goals. It said this would help stakeholders understand the impacts of their own actions on emissions targets.

“Our approach does not prevent the industry from going ‘further faster’,” Ofwat said, adding that it welcomed companies’ ambitious plans to achieve their own nearer-term targets.

“However, this should not be at the expense of levels of reduction achieved, operational and embedded emissions being addressed in parallel, or ensuring value for both customers and the environment,” the regulator said. “Irrespective of the approach adopted, companies are encouraged to make use of recognised national and international approaches and standards to ensure company actions and reporting on net zero are robust and verifiable.”

Ofwat highlighted that the industry’s joint Routemap to net zero, coordinated by Water UK, has not addressed certain emissions such as from the use of chemicals, embedded emissions, or those from the disposal of sludge to land.

The regulator said companies should focus on both embedded and operational emissions to avoid either being neglected and ensure efforts to reduce one do not increase the other.

Ofwat encouraged greater innovation for long-term solutions and called for companies to take sustainable, long-term, well-informed investment decisions with phased expenditure to ensure best value for billpayers.